Health Care Reform

The U.S. is currently spending 18 percent of its GDP on health
care. As the economy shrinks, health care costs inflate, and health
care insurance is expanded as proposed by Barack Obama and Congress,
the percentage of GDP spent on health care will soon exceed 22
percent. As our population ages, the percentage of GDP consumed could
easily grow to 25 percent.

Health Care is not Health

We now spend so much on health care that it is very likely reducing
our health compared to having a minimal system. In order to pay for
our health care system, Americans are forced to work 25 percent longer
hours than they otherwise would. Except for young people building
their skills and reputation, working long hours is bad for a person's
mental and physical health. The person who works 60 hours per week
instead of 48 has less time to exercise, less time to relax with
family, and less time to sleep.

If the money that we paid for health care turned us all into Michael
Phelps it would certainly be worth it, but working those extra hours
every week, year in and year out, has instead turned us into obese
desk slaves.

Given the cost of our current health care system, the U.S. would
probably have a longer life expectancy than our present 78 years if we
had no hospitals, no doctors, and no drugs beyond the cheapest and
most basic, such as penicillin, aspirin, etc. We have clean public
water supplies, good sewage treatment, vaccines against epidemic
diseases, and antibiotics. Without the possibility of a helicopter
medevac flight, Americans might rethink the wisdom of putting texting
17-year-olds behind the wheels of 7000 lb. SUVs, thus reducing the
need for trauma services. Without the possibility of diabetes
treatment, statins, coronary bypass surgery, or stomach stapling, eating in
moderation would become more fashionable. Nobody is seriously
advocating eliminating our health care system, but it is worth
occasionally asking the question "Is our system so broken and
expensive that we'd actually be healthier with nothing?"

Who Voted to Spend All of Our Money on Health Care?

Our mature economic competitors, such as Japan and France, spend
between 8 and 11 percent of GDP on health care. China spends about 5
percent. As noted above, we're going to spend 22 percent. Did someone
vote for that when we weren't looking?

Without any public debate, Americans have decided that we will
spend money on health care rather than invest it in any of the
following:

general research and development, which is currently just 2.7 percent of GDP (source)

education

renewable energy such as solar power

improved telecommunications facilities, including a wireless Internet over the entire U.S.

public transportation systems

highways, bridges, and other infrastructure

technology and systems to reduce air pollution, which may cause as many as 70,000 deaths in the U.S. annually

technology and systems to reduce automobile fatalities, which number approximately 40,000 annually

Without any public debate, Americans have decided that we will
spend money on health care rather than spend it on any of the
following:

If we cut our health care costs to Japan's percentage of GDP, for
example, we would be able to finance the entire U.S. military plus our
adventures in Iraq and Afghanistan, and still have enough left over to
double our economy's R&D investment.

Luxury Health Care or a Paid-for Life?

Suppose that you could give up two years of life expectancy in
exchange for the following: paid-for housing, paid-for cars, paid-for
college, paid-for vacations, paid-for children. Instead of living 78
years, you'd expect to live 76, but you'd never have to work full-time
and could probably pack a lot of enjoyment into those 76 years because
you wouldn't be a slave to day-to-day expenses.

Let's compare the U.S. to Mexico. Mexicans share our continent, our
love for soda and corn syrup, and our tendency towards chubbiness (source). We
spend approximately $8500 per year per American on health care and
live to the age of 78. A Mexican can expect to live to age 76. How
much do Mexicans spend on health care? Their per-person GDP is only
about $13,000 per year, and they supposedly spend about 6 percent of
GDP on health care (source)
so $800 per person is a good estimate.

An American will spend $600,000 in order to add two years to the end
of his life. Those two years may very well be spent in an intensive
care unit or a nursing home and certainly are not likely to be spent
on the tennis court or visiting the Venice Biennale.

For that $600,000, an American could have the following:

a house, free and clear of all mortgages (median price for a single family house sold nationwide in May 2009 was $170,000)

a lifetime supply of automobiles, assuming $20,000 per car, a 10-year life per car, and 50 years of driving ($100,000)

50 vacations for a family of four (average cost $1600; total of $80,000)

a college education ($25,000 of tuition for four years at a public university)

two children, reared to the age of 17 ($125,000 per kid, average cost for a basic family (source); note that a pair of Americans could have four children, all of whose costs would be completely paid for out of this $600,000)

$75,000 in walking-around money

On the Mexican plan there would be no helicopter medevacs, no
death-after-weeks-in-the-ICU, and many fewer MRIs. A Goldman Sachs
employee might well decide to spend $600,000 of his TARP-funded bonus
in order to live two years longer, but why should every American be
forced into spending this $600,000 on health care? Admiral John
McCain, Sr. was famous for saying "Not another penny on doctors!
I'm spending it all on riotous living," in response to his wife's
suggestions that he address some of his health and dental deficits.

Additional Problems with Our Current System

Aside from the ruinous cost, we have the following problems with our
current health care system:

tremendous waste and inconvenience for doctors due to voluminous
and disparate insurance company forms, procedures, policies and whims;
one doctor friend works in a practice with 11 other docs and they
employ 8 full-time people simply to handle billing and insurance;
another doctor is a solo practitioner; she has a full-time employee
(1:1 ratio) to deal with insurance bureaucracy

tremendous waste and inconvenience for patients due to
inefficiencies, indifference, and errors by health care providers who
don't care what patients think of them (and why should they, since an
insurance company or Medicare is paying the bill?)

a lot of patient time wasted with unnecessary tests

a lot of society's money and time diverted to litigation

lack of transparency or fairness in pricing for the uninsured; a
doctor might bill $10,000 directly to a patient for a procedure that
Medicare pays $800 for.

The Real Question: Why Aren't Things Much Worse?

Among all of the products and services that we buy, health care has
some unusual characteristics. The government pays for more than half
of it directly. Most of what we pay, typically through our employer,
is tax-deductible. The amount of services to be delivered, i.e., the
tests and procedures to be conducted, is determined by the people who
are getting paid to deliver them. There is no limit to what a service
provider can collect from the government or a private insurance
company for treating single patient. The real question about this
system is not "How come it costs so much and works so badly?" but "How
come it costs so little and works at all?" Why did we ever expect this
system, as currently set up, not to bankrupt us?

My theory is that the perverse incentives in the system are ameliorated
to some extent by dedicated individuals at all levels, from insurance
company executives down to hospital orderlies. If health care
professionals responded to incentives like Fortune 500 or Wall Street
executives do, health care would consume 80 percent of GDP and most of
us would be dead due to complications from our daily X-rays, blood
transfusions, medication cocktails, dialysis (you can never be sure
that your natural kidneys are functioning perfectly, so why take a
chance?), etc.

What Could We Get for Our Money?

As the health care industry has never been competitive, nor had any
incentive to control costs, we have no idea how much American health
care could or should cost. Hospitals are much more like defense
contractors than participants in a free market. They talk about their
costs and how they need to be paid "cost plus". Given sufficiently
poor incentives, it is possible for Americans to be spectacularly
inefficient. The U.S. government decided to buy some helicopters that
were already being built in Europe and flying happily all over the
world. The helicopters could have been purchased for $30-50 million
each and delivered in three years. By the time Lockheed-Martin and the
U.S. military finished working together to design some enhancements
and move production to the U.S., the delivery time had stretched out
to 10 years and the cost escalated to $400 million each (Wikipedia). Health
care in the U.S. is primarily paid for by the U.S. government and more
or less in the same way as we buy military hardware.

The reengineering that has transformed other American industries
hasn't been tried in health care because there has been no incentive
to try and very little competition. Health insurers cannot do business
across state lines. Doctors licensed in one state cannot practice in
another. Fully trained doctors from countries with superior medical
systems to ours cannot legally practice here. A hospital that charges
less money cannot attract more patients, since the patient is almost
always entitled to go to the hospital closest to his or her house (the
same guy who would drive up to New Hampshire to save 6.25 percent
sales tax on a set of tires wouldn't drive up there to save his
insurance company $5,000 on an operation).

When a business process is rethought and reengineered, the savings can
be astonishing. We can mourn the death of the American Main Street,
but Walmart is able to deliver goods at prices that would previously
have been considered unsustainably low. If we'd had the structural
barriers to innovation in retailing that we have in health care, we
never would have known that groceries could be 22 percent cheaper (source) in
what was already thought to be a competitive market.

Consider the four-passenger automobile, a product that everyone agreed
needed to cost about $20,000. Japanese companies improved the
quality, but did not question the premise that a 170 lb. human needs
to be wrapped in 3000 lbs. of machine in order to move down the
road. A few engineers in India questioned all the previous assumptions
in car design and came up with the Tata Nano, a
perfectly functional four-passenger car that costs just over $2,000.

Reform Suggestion One: Provide Universal Coverage

The U.S. government already spends more than half of the health care
dollars spent in the U.S. As this is a larger percentage of GDP than
Japan spends on health care for all of its citizens, we have the
proven ability to pay for universal health care, assuming that care is
delivered in an internationally competitive manner.

Does this mean that we need a government-run national health service,
as they have in the United Kingdom? No. Via the public schools, we've
already demonstrated that a large-scale enterprise staffed with
American civil servants ends up being a national embarrassment and a
huge drain on the treasury. Private HMOs and clinics should be able to
compete to take care of patients, paid for on a per-patient (not a
per-procedure) basis by the federal government.

Should we cover visitors? Sure. An American traveling in a lot of
other countries can count on free treatment, at least of
emergencies. We can set up reciprocal arrangements with other
countries for non-emergency care. If an American can get a flu shot in
France for free, a French tourist should be able to get a flu shot
here.

The question of illegal immigrants has caused a lot of controversy in
Massachusetts, a state with universal health insurance and hardly any
illegal immigrants. Illegal immigrants pay sales tax, gas tax,
property tax (through their landlords), and, if they're using someone
else's Social Security number, payroll and income taxes. Why shouldn't
they get what American citizens are getting? Keep in mind that we're
controlling costs by keeping the services provided fairly basic.

Rules and regulations:

each resident will be given a voucher good for signing up at the
clinic or HMO of his or her choice; the amount of the voucher will
depend on the resident's age and sex (the weighted average of all
vouchers will equal $2,000 or whatever we've decided we want to spend)

a clinic or HMO that wishes to get any revenue from the federal
government will be required to take any person who submits a voucher,
regardless of preexisting conditions

a resident of the U.S. can switch clinics annually, let's say on
May 1.

the clinic is responsible to pay for the resident's emergency
medical care at another facility

One likely side effect of this reform is the return to centrality of
the primary care physician. Joe Medicare Patient often does not have
any doctor who understands much less coordinates his care. If Joe has
seen six specialists, he may be on drugs that are working at cross
purposes. If Joe is in the ICU at a typical hospital, the multiple
doctors treating him may never talk to each other. Each one knows what
tests and procedures he or she has ordered, but, except by looking at
the patient's chart, has no idea what the other doctors are
investigating. One primary care doctor who reviewed this proposal said
"The first item I address with new patients in my office is to try to
get them off as many drugs as possible; when a 70-year-old is on 11
meds you better believe there are many unintended interactions."

Limit the Cost by Limiting the Cost

Right now we have intellectual arms race of the government trying to
limit costs by cutting payments to providers for various
procedures. Medicare cuts the amount that it will pay for a doctor to
talk to a patient. The doctor decides to make sure that at least half
of the patients seen will need something cut off with a scalpel, which
can be billed to Medicare as a "surgical procedure". In While
America Aged, wags noted that after General Motors added
podiatry to its workers' and retirees' health care coverage, workers had
their feet operated on one toe at a time.

We currently spend about $8500 per year per American on health
care. Japan spends about $2,700 and her citizens live much longer than
Americans. After a public debate, we would decide affirmatively how
much of our tax dollars we wanted to spend on health care. Suppose
that we decided that it should be an average of $2,000 per person on
the public clinics. Let's further suppose that all 300 million
residents of the U.S. signed up. The annual cost would be $600
billion. How does that compare to current government spending?
Medicare and Medicaid alone cost over $800 billion and cover only a
fraction of the U.S. population.

Would it be possible to provide basic health care for only $2,000 per
person here in the U.S.? Health insurance right now for a middle-aged
American costs closer to $3,000 per year for a basic plan, but our
clinics are going to exclude a lot of expensive tests and procedures
that these plans cover. We're also going to eliminate most
administrative costs by folding the insurance company into the
clinic. Now they won't each have to hire staff to fight with each
other.

We can make the Patient the Customer

One reason why the health care industry provides such appalling
service is that the patient is seldom the customer. You might pay
$16,000 per year to insure your family of four and think of yourself
as entitled to some deference from a vendor (i.e., doctor or
hospital). But the vendor will be getting paid by the insurance
company and has no reason to care what you think. The vendor can keep
you waiting for three hours, make a lot of mistakes and not apologize
for them, etc. You probably won't switch HMOs or insurance companies
due to the hassle and the fear of being denied due to a preexisting
condition.

Were the health care system to be reformed along the lines proposed in
this article, the patient would almost always be the customer. The
public-only patient would have the freedom to switch clinic/HMO
annually. The wealthier patient who was buying some services on the
open market would by definition be the customer.

Reform Suggestion Two: Increase the Supply of Doctors without Increasing the Number

If we are going to have more patients, we are going to need more
doctors. At 2.4 doctors per 1000 residents, the U.S. has fewer
physicians per capita than other developed countries. The OECD average
was 3.1 per 1000 residents; France has 3.3. We don't have enough
doctors for our current system, especially doctors who do primary
care.

We can increase the supply of doctors to some extent without
increasing the number of doctors. How? A doctor today has to spend
time choosing an IT system, figuring out which insurance networks to
join, filling out insurance paperwork, arguing with insurance
companies, interviewing assistants whose job it will be to fill out
insurance paperwork, argue with insurance companies, etc. The
Byzantine complexity of the American medical system significantly
reduces the amount of time that our doctors have to practice
medicine. If we make it easy and simple for a doctor to treat patients
while earning a reasonable salary, the existing group of doctors will
have more hours in which to see patients.

Streamlining insurance and litigation also increases the supply of
doctors. If fewer people sign up to private insurance, once a
universal public care system is available, the insurance companies
won't need to employ so many MDs to review claims. If medical
malpractice cases are taken out of the tort system, we will have fewer
doctors tied up serving as expert witnesses (at least one on both
sides of each case).

Consider a doctor who moves from New York to Massachusetts because of
a spouse's sudden job transfer. This fully trained doctor might have
to spend some months out of the labor force because he or she has not
completed the paperwork for being licensed in Massachusetts (whose
Board of Registration says on its Web site that it "usually requires a
minimum of 4 months" to get a license). Each of 50 states has a
physician licensing board, which itself employs physicians. You might
think that these boards protect patients, but in practice physicians
who've committed serious errors in one state are typically able to get
licensed in one of the 49 other states. A federal licensing system for
physicians will (1) make it easier for doctors to work wherever they
happen to move, (2) enable doctors who are spending time on state
licensing boards to go back to seeing patients, and (3) make it
tougher for an incompetent doctor to shop around for a new state in
which to get licensed.

Reform Suggestion Three: Increase the Supply of Doctors by Increasing the Number

According to the Wall Street Journal, April 4, 2008, "The U.S. went
more than 30 years without a new med school". (source)
With a population growing at 1 percent per year, the 131 current
medical schools have become ridiculously insufficient and finally
there are a few startups. The dean interviewed by the Wall Street
Journal estimated the cost of starting up a new school at
approximately $100 million, including dormitories, classrooms, and
laboratories. In other words, for the cost of bailing out GM and
Chrysler, we could have financed 1000 new medical schools. Since the
U.S. government is the largest purchaser of services from physicians,
it makes sense for the federal government to provide financing for
perhaps 100 new medical schools. The government should provide a
standard curriculum, including online textbooks, and a standard
staffing plan, the use of which would guarantee accreditation.

New medical schools won't alleviate our immediate shortage,
however. For that we need to make it easier for foreign physicians to
immigrate to the U.S. and practice. If we said that we would admit a
doctor from any country whose life expectancy was at least within 2
years of the U.S. that would encompass MDs from roughly 70 countries
(source). Currently
a foreign doctor must surmount a tortuous bureaucracy and a visa
lottery to get into the U.S. (the 9/11 terrorists were all in the
U.S. legally, but the U.S. Citizenship and Immigration Services does a
great job of keeping Australian doctors out). Once here, he or she
must repeat much of the training that was already completed back in
the old country, e.g., Australia, Sweden, France, or
Switzerland. Let's replace this a virtually automatic 5-year work
visa, a one-year transition training program, and a challenging exam
at the end (for specialists, perhaps simply require them to become
Board-certified, something that U.S. physicians are not required to
do).

Fairness

Fully implemented, this proposal would leave the U.S. with a
U.K.-style public/private two-tier health care system. The rich would
have access to more doctors, more procedures, more tests, more drugs,
and fancier facilities. Isn't it every human's right to equal quality
medical care? Shouldn't the standard of care be the same for a hobo as
for an AIG executive?

The current system aspires to fairness but falls far short. Barack
Obama travels with a personal physician and nurse (story). Back
at the White House, he and other top officials have four doctors
"steps from [the Oval Office]". Suppose that a surgeon in France has
developed a life-saving procedure. A rich American can get in a
private jet and visit that surgeon, paying for the operation out of
pocket; the average American might have to wait 5 or 10 years until a
surgeon in his or her region had been trained to perform the
operation.

Some unfairness is a necessary component of any system involving
humans. If 1000 people buy 1000 Honda Accords tomorrow, each will have
a very similar driving experience. If 1000 people visit 1000 doctors
tomorrow, each will have a very different experience. Some doctors
will be smarter or more skilled than others. Some doctors will be
better rested and hence able to do a better job than others. It is
literally impossible to construct a system in which everyone gets
equally good care. Thus we might as well construct a system in which
everyone gets good care without bankrupting the nation.

Reform Suggestion Four: A Basic Standard of Care

Currently the standard of care is "we'll do anything that might
conceivably prolong a patient's life regardless of the cost,
regardless of what else society might have done with that money, and
regardless of risks and suffering to the patient." When we're done,
we'll send Medicare, Medicaid, or Blue Cross a fat bill, even if the
patient goes home in a box, just as expected. If a clever doctor came
up with a $1 million operation that would provide a one-year life
extension for anyone about to die, our present insurers would
essentially be obligated to buy that operation for every sick or old
American. A 105-year-old would have his life extended indefinitely at
a cost of $1 million per year to working-age Americans.

As part of the reform, the government needs to define a basic standard
of care to which vendors must adhere as a minimum. In some ways this
standard of care might be higher than the present average, e.g., in
requiring hospitals to use checklists and better handwashing to avoid
errors and infections. In others, the standard of care could be
arguably inferior. We'd need to gather experts in all fields of
medicine and economics to figure out which therapies were the most
cost-effective in terms of improving peoples' lives. The standard of
care would be continuously reevaluated as new procedures, devices, and
drugs became available. It is probably safe to assume that a
taxpayer-funded patient with terminal cancer won't have a series of
exhausting and expensive operations that might prolong life by a few
months, that a 95-year-old won't have a monthlong $250,000 stay in an
intensive-care unit, and that someone who falls off a bike and has a
headache won't get an MRI immediately the way that people currently do
in cities where the physicians own the MRI.

Competition among clinics/HMOs should result in a higher standard of
care being offered by some in order to attract consumers. As noted
above, because the health care industry has never been competitive, we
have no idea what cost-savings might be possible. If McDonald's were
run as incompetently as a typical hospital, a Big Mac would cost
$25. An increased supply of medical doctors might also result in a
higher standard of care being deliverable than is presently possible
for a reasonable cost.

Remember that nothing stops someone from spending his or her savings
on additional tests or procedures, or on private insurance that might
cover such expenses.

Reform Suggestion Five: Shut down the Veterans Administration Hospital System

Now that every resident of the United States is entitled to health
care, we can shut down the Veterans Administration health system that
costs taxpayers $50 billion annually. The vast majority of patrons of
the VA health care system are veterans whose medical needs are no
different than any civilian's. For those veterans who have specific
combat-related injuries, the military can pay for supplemental care in
private facilities. For soldiers who have combat trauma that requires
critical care, we already have excellent military-run hospitals that
specialize in such care. We can take any VA hospital units with combat
trauma experience and transfer them to the active Department of
Defense hospital system.

Reform Suggestion Six: Scrap Government-mandated Health Care IT

Information technology could make medicine safer, more efficient, and
cheaper. Suppose, for example, that the government ran a central
medical records system for all of the people signed up to the basic
healthcare plan. Rather than investing in an IT system, a clinic or
individual physician who wished to participate in the
government-sponsored system could use this central system. Consider an
individual doctor. She sets up shop in a small town, buys a PC for
$300, signs up to broadband for $29/month, and is done with her IT
selection and investment. When a patient comes in to see her, she
looks up the patient's history, plans a treatment and types in what
she did. The patient's record is updated and the physician gets paid
for her time. That's how computer systems could save the country
money, but it is not how the federal government is proposing to use
computers.

The current federal system mandates that physicians use an electronic
health record, but provides no guidance or assistance. Consider an
individual physician setting up an office. She needs to choose among
30 different software packages, sold and supported by 100 different
vendors. This is the kind of IT choice that, at a hospital, would be
made by a committee of eight experts doing research and getting demos
over a period of 9 months. Our physician, who has no training in
software or IT management, is expected to make an informed choice in
between seeing patients. When she does make her choice, she'll pay
$30-100,000 for the system and between $10,000 and $100,000 per year
for maintenance, updates, and system administration.

What about the larger implications for societal efficiency? There are
at least 100 comprehensive yet different patient health record systems
out there, each with a different way of storing the same
information. The government is mandating that these data be
exchangeable, but has thus far provided no standards for the
exchange. With 100 different systems out there, there are roughly 5000
possible pairs of heterogeneous data models. We would need all of the
programmers in India to write 5000 data converters to usher in the era
of electronic health records.

If privacy concerns make it untenable for the government to run an
efficient electronic medical record system for the health care
providers being paid with tax dollars, let's at least have the
government fund a few open-source electronic medical record
projects. The goal should be a simple one: an individual physician or
small group should not have to endure any IT expense beyond purchasing
a PC and cable modem.

Given the hopeless state of the health care IT industry right now,
with hospitals spending $70 million or more on systems that doctors
find inferior to paper, perhaps the best thing the government could do
is stop pushing the industry to buy more software. At least until the
average health care application works as well as a free Google
application, society is better off not buying any more of this
inferior product.

Do we want Americans to spend more and more money on health care? If
not, why do health care expenses get favorable tax treatment? We made
mortgage interest deductible and ended up with the world's most
ridiculous mortgages, as well as the world's most inflated real estate
prices. We've made health care expenses deductible and that probably
contributes to the fact that we have the world's most inflated health
care prices.

The typical American, after this reform plan is implemented, won't
have significant health care expenses. He or she will get a voucher,
hand it over to a clinic or HMO, and put aside a few extra dollars for
aspirin. An executive who enjoys a lavish company-funded concierge
medical service should not be able to stick a Walmart worker with part
of the cost.

Estimates of the cost of malpractice insurance, lawsuits, and
defensive medicine range from 2 percent to 10 percent of our current
total health care expense. If we accept the 10 percent figure, that
means it is inching up toward $300 billion per year, perhaps enough to
pay half the cost of a reasonable health care system for every
American.

Consider the ludicrous nature of our current system. Imagine that
you're a jury on a case involving a baby with Cerebral Palsy. John
Edwards, the personal injury lawyer turned senator, is channeling
the thoughts and voice of the fetus. You, who has never had any
training in biology, chemistry, neurophysiology, medicine, or
epidemiology, are listening to evidence about what happened during a
mother's labor and delivery. You're listening to experts hired by each
side trying to educate you about the causes of cerebral palsy. The Wikipedia
page says "Despite years of debate, the cause of the majority of
cases of [Cerebral Palsy] is uncertain." Scientists who've worked on
this for decades cannot agree on what causes the condition, but you're
supposed to figure it out in a week or two. As part of your service as
a juror, you are precluded from doing any research on your own. You,
however, are going to decide whether or not the horribly sick child
gets $10 million or nothing. Good luck.

Patent appeals aren't heard by a general purpose judge and no jury is
involved. These highly technical cases are heard by a
special court. We could do the same for medical malpractice, thus
making the process less of a lottery. Cases heard before a judge with
specialized training in the process of medicine would be less likely
to depend on whether the jury sympathized with the kindly physician or
the horribly injured patient. The malpractice court judge would have
the ability to hire independent experts to conduct analysis for the
court, rather than simply relying on expert witnesses hired by the
plaintiffs and defendants.

Our current malpractice dispute resolution system doesn't serve anyone
well, except perhaps some lawyers. Most victims of medical malpractice
are unable to find a lawyer to represent them because the cost of
litigation in conventional court is so high. Unless you've been
reduced to a vegetable or killed by a doctor, it is unlikely that
you'll ever get an apology from the health care provider who screwed
up, much less a refund or compensation. We need to make it easier for
victims of less-than-epic mistakes to get compensation, if only to
encourage clinics and HMOs to do a better job. We also need to make
the costs of losing a malpractice dispute more predictable for the
clinics and HMOs, capping punitive damages and pain and suffering
awards.

How Do We Ensure Quality?

Some of the proposals advanced by the Obama Administration and
Congress have included various government committees and initiatives
that aim to improve the quality of health care services. If this
reforms proposed in this article were implemented, what would be the
quality control mechanism?

We now have a more or less standardized product that consumers are
buying, i.e., one year of health care to at least the basic
standard. When comparable products are available at similar prices
from competing suppliers, the marketplace should ensure that the
highest quality methods and suppliers bubble to the top. We don't need
a government committee to figure out if a Honda Accord is better than
a Toyota Camry. They're both pretty good, first of all, because
inferior designs have been driven out of the market. Despite the
horse-trading culture of car dealers, the prices are fairly
transparent. Because the products are available nationally, a variety
of magazines and Web sites are able to help consumers figure out which
product is best for them.

If the government, as the main buyer of health care services, wishes
to help consumers compare, it could define a metric of health,
encompassing such factors as blood pressure, pulse, body mass index,
cholesterol levels (before tweaking by statins), age, chronic
conditions, medications taken daily, alcohol and tobacco consumption,
any positive tests for cancer, etc. Each clinic/HMO would measure its
customers upon entry into their progam and at every checkup. If the
data were published it would be possible to compare different clinics
at improving their customers' health (a patient who died would score a
0!).

How come it has been so hard to ensure quality in the current American
health care system? The patient is not the customer and competition is
very weak, so suppliers make very limited attempts to communicate with
patients. Prices are not published, so nobody can figure out if
something is a good value. If no prices were available, you might
think that a Honda Accord was kind of crummy compared to a BMW
7-series sedan. Upon finding out that the BMW costs four times as much
and consumes twice as much gas, your opinion of Honda's engineers
would probably improve. If the automobile industry were like America's
health system they would say "It is every American's right to have the
best car that can be constructed with 2010 technology, regardless of
cost." But the average consumer would rather have the Honda Accord and
$60,000 in walking-around money than the BMW.

How Does the Health Care Industry Prosper?

With all of these proposed changes in place, how could the health care
industry prosper? Thanks to universal coverage, the industry will
have more paying customers, but the government basic rate won't be as
high as what the industry currently gets from Medicare and
Medicaid. How can insurance companies survive now that every American
will have buit-in catastrophic health insurance?

The answer is product and service innovation. Big changes in
technology or markets do sometimes trip up companies that fail to
innovate. The record companies are a familiar example, out there
trying to sell the same product that they did 120 years ago, i.e., a
physical embodiment of a sound recording (in 1890 it was an Edison
cylinder, then an analog disk through the mid-1980s, then a digital
Compact Disc). Sales are down and the industry complains about
Internet file sharing. The average consumer, though, wouldn't clutter
his or her house with CDs even if they were free. The consumer's home
entertainment budget is spent on (1) subscriptions to cable TV, Web
sites, and satellite radio; (2) video games, and (3) movies on disk at
ever-improving quality (contrast to the sound recording industry,
which went from the CD to low bit rate digital recordings on iTunes (a
computer application that they weren't even able to build for
themselves!)). A movie that cost $150 million to produce may sell on
Blu-ray for $9-15 or is delivered on demand for $4 over FiOS. Why
would we expect any consumer to pay $18 for a sound recording?

There is no law that says the health care industry needs to display
the same lack of innovation that the recording industry does. And
universal coverage doesn't mean that there is nothing left to
sell. Even today insurance companies are very successful at selling
supplemental insurance to seniors eligible for Medicare.

Aside from supplemental insurance, the insurance companies could
promise to steer consumers to the most qualified doctors. Right now a
doctor being part of an insurance company's network probably means
that he or she is willing to accept the company's derisory financial
terms. The insurance company, however, by looking at rates of
complications and other outcome measures, probably has a pretty good
idea of who the best providers are in a region and could make good
money by selling that information to consumers, either directly or in
the form of a "only the best doctors" supplemental policy.

Health care providers could sell more convenience and luxury to
consumers. There is hardly a family in America whose transportation
needs would not be met by an $8,000 Chevy Malibu auctioned off by a
rental car agency, yet the car makers have no difficulty in selling
$25,000 new cars or even $50,000 pavement-melting SUVs. You don't have
to be a genius to cook a basic dinner from raw ingredients, but
supermarkets have no trouble charging 2-3X more for already-cooked
food.

Let's start with convenience. A doctor or nurse could equip a van or
motor home with all of the basic primary care or pediatric equipment
and supplies and drive around to patients' houses. You can get a dog
groomer or veterinarian to come to your house, why not a doctor? With
modern computer software and wireless networks it should be possible
for a big HMO to route a doctor from house to house so that time lost
in transportation is minimal. By visiting the patient at home, the
doctor may be able to get a better sense of what might be wrong with
the person.

Time of day is another opportunity for the health care industry to
make money. You can go to the supermarket at 7 pm. How come you can't
go for a doctor's appointment at 7 pm? A lot of patients would pay
extra to avoid having to take time off work or school.

Many patients would pay a substantial sum in order to avoid being
bounced from building to building and from day to day. If a doctor
thinks that you need an opinion from a specialist, why can't that
specialist walk down the hall, come into the exam room, and look at
you then and there? This saves the specialist from having to write a
letter back to your primary care doctor, since your primary care doc
is still in the room.

Communication is something that patients have already demonstrated a
willingness to pay extra for. Patients on concierge medicine plans can
call their doctor, or at least a doctor, 24/7 and expect the person
who picks up the phone to know their medical history.

What About All of those Rich Doctors?

Would health care reform as proposed here keep doctors from getting
rich? Actually, despite the larger number of doctors permitted to
practice in the U.S., some existing doctors should be able to earn
considerably more.

Right now the best doctors cannot effectively market themselves to
patients and therefore cannot command higher prices than average or
below average doctors. A doctor's customers are clerks at insurance
companies and bureaucrats at Medicare. All these folks care about is
how much she charges; they don't care whether or not she is more
effective at curing disease. Consequently, doctors who barely meet the
minimum standards for their specialty might get paid almost as much as
superb physicians in the same specialty.

A fantastically gifted primary care physician today would be lucky to
earn half as much as a heart surgeon who kills 60 percent of his
patients. Our system rewards doctors who cut, slice, and blast with
lasers. It doesn't reward doctors who restore us to health. Our health
and well-being has no value to an insurance company or Medicare and
therefore a physician cannot charge anything for making us healthy. A
savvy consumer, on the other hand, might be delighted to pay a
significant sum to a primary care physician who effectively
coordinated the efforts of specialists, as needed, and kept the
consumer healthy.

The doctors who have become rich by opening a chain of clinics and
taking on business risk should continue to prosper as long as they can
deliver services competitively. The doctors who have become rich by
investing in hospitals or MRI facilities and then referring their
patients to those facilities will surely see their incomes fall.

Freed from the bureaucratic hassles of dealing with insurance
companies, doctors of average ability and ambition who see a lot of
private patients would immediately realize a huge improvement in
profitability if only because they could replace most of their billing
staff with a simple credit card machine.

Summary

Anything that is sufficiently expensive is bad for our health. Nothing
that American society buys is more expensive than health care. By
crowding out time and money that could be devoted to things other than
working at our mostly sedentary jobs, the American health care
industry reduces the overall health of Americans.

To dig us out of the hole that we started digging for ourselves in
World War II, when the current American system of health insurance
began to take root, here is a comprehensive plan:

provide a reasonable standard of health care for all Americans and visitors to our country, paid for with tax dollars

the government pays for annual care of a resident to at least a
basic standard; the government is not on the hook for individual
procedures or tests nor is it obligated to pay for exciting new
procedures, tests, and drugs

make it easy for doctors to practice medicine

increase the supply of physicians by making it easy for
foreign-trained doctors to work in the U.S., and making it easy for
universities to start new medical schools

eliminate special tax treatment for health care or health insurance expenses, whether paid for by an employer or an individual

move medical malpractice into a specialized court with no jury

Comparison to Obama Administration and Congressional Proposals

It is difficult to compare this proposal to what's being proposed by
the Obama Administration at www.healthreform.gov because
the government's Web site doesn't say what should be done, i.e., there
is no actual Obama Administration proposal other that "reform". It
talks about problems and costs associated with the present system and
how they are intolerable. Providers are overbilling Medicare, for
example, and "reform" is going to stop these clever people from being
clever in the future.

America's Affordable Health Choices Act of 2009, H.R. 3200, a bill
currently before Congress, is more specific. Looking at Section
100(c) of this bill, we find that nothing is going to happen until
the year 2013 ("Y1" = 2013). In other words, Congress is rushing to
enact more than 1000 pages of legislation, without anyone having time
to work out the costs or implications, because reforming health care
is critical to reestablishing continued economic growth in the U.S. On
the other hand, the problem is not so bad that it can't wait until
January 1, 2013. This gives the politicians who vote for or sign the
bill more than three years to take credit for having "reformed" health
care before anyone starts to suffer from the consequences of these
changes. This makes health care reform a bit like increasing pensions
for public employees. A politician gets a boost in popularity that
lasts long enough to ensure reelection; the taxpayers get stuck with
paying the bill for the next 30-50 years (see While
America Aged for how generous pension benefits granted by
Robert Wagner as part of mayoral reelection efforts of 1958 led to
New York City's near bankruptcy in 1975).

As best as I can tell, every group that makes a lot of profit from the
current system has hired enough lobbyists and supplied enough cash to
politicians that their way of doing business won't be significantly
changed. Insurance companies will continue to operate as oligopolies
with byzantine rules that enable them to give doctors and customers
the infinite run-around. Existing doctors won't face competition from
a large crop of graduates from new medical schools or from foreign
doctors in significant numbers. Hospitals will get paid by the
procedure. Personal injury lawyers will be able to sue in the same
courts and present cases in front of the same juries. We thus have the
spectacle of Congress saying that they're going to "reform" the health
care system, except that there can't be any significant change for
doctors, hospitals, lawyers, or insurance companies. What is left?

Unless one has a morbid interest in where one's tax dollars go to die,
it is tough to come up with a reason to pay attention at all to the
current debate in Washington. The "reform" currently being discussed
is simply the government printing money to give to insurance companies
to put more people into the world's least efficient system of health
care administration.

Comments from Medical Doctors

Before making this document public, I circulated it to some of friends
who are doctors. Here were their reactions:

in government-run or union-organized hospitals, exactly the same
services could be delivered at 50-70% of the current cost, merely by
dividing labor and working more efficiently.

insurance company paperwork is an enormous drain on physician time
and energy, despite the large staffs employed by physicians hoping to
insulate themselves from this debacle

there should be more emphasis on patient responsibility; citizens
of normal weight should not have to subsidize the obese and all of
their expensive problems

this article understates the costs and the inefficiencies
associated with health care IT

More

"The Cost Conundrum", by Atul Gawande in the June 1, 2009 New Yorker; good explanation of how we currently manage to spend so much

Reader's Comments

2 more:
- Add a requirement for doctors to publish their prices for procedures and charge the same price to everybody independent of insurance status. I have a high deductible plan and whenever I ask a doctor about cost I rarely get a straight answer. I am starting to suspect that they are making up their prices based on what they they think a patient can pay.
- Publish all available quality numbers. Doctors will complain that they are misleading and confusing but this will be much better than having nothing as we do now. Insurance companies probably have these numbers and all of them should be published IMO.

If I had been writing that article, I would have emphasized more the
high cost of the current billing system.

When I was working in medical computing (the early 1980's), a number
people threw around was that every item on a patients bill cost $7
just for the billing. So those $7.50 bandaids people got billed for
when they went to the Emergency Room were in fact correctly priced.

I'm sure the number is different now. I would guess higher, for
reasons you discuss.

This is related to what your physician reviewers said about how much
physician time is spent on billing, but physicians are a small part of
the cost of third-party billing.

PATIENTS AS CONSUMERS

One point that nobody seems to make when talking about the idea of
patients as consumers is that nobody who actually provides medical
services actually has any idea how much they cost the patient. So
even if you wanted to have tests done only if they had a reasonable
chance of finding something that could be treated at a reasonable
cost, you would find it very difficult to find even the cost to you of
the proposed test, let alone of theoretical treatments.

I hear many people say that Obama is working against a lot of inertia within the American public on the part of people who are satisfied with their health coverage and think they'll be screwed by their automatic inclusion into an enormous government-run clusterfsck of a system to replace it. These people seem to favour an incremental series of changes to our current system, like covering additional people or reworking the rules so insurance companies can't do scummy things like drop people under false pretence when they get expensive, and making the government prove itself on those before going further.

To address these concerns, I think it's really important to emphasise the amount the average US worker is missing in salary just by passing the cost of their insurance on to their employer. A lot of people pay lip service to the concept and say they take it into account when considering the health care question, but I'm really not sure they're appreciating the gravity of the concept.

Yeah, the government might take some additional cash to get this thing rolling--they aren't known for getting things done on time and under budget, for that matter, and cost overruns come out of the taxpayers pockets. But once this thing is passed, you'll instantly be getting hundreds or even thousands of dollars more from your employer every month, immediately. They'll be giving you most or all of what they're spending on your health insurance without having to pay an additional cent to compensate you. Even if you're taxed on it, that's going to be more than enough to sign yourself up for one of the competitively-priced supplemental plans that insurance companies will certainly begin to offer. Or you can just use the government baseline and spend the rest on airplanes, or vacations, or coke and hookers.

You'll have to put in a little more time each time renewal comes around than you put in considering your auto insurance and shopping around, and you're golden.

nitpicks

Compact Disk should be Compact Disc

$150 million to produce sells on Blu-ray may sell for $9 should be $150 million to produce Blu-ray may sell for $9 on Blu-ray ... also, most movies sell for much more than $9 on Blu-Ray, don't they? I'm sure you could find some low-quality overstocked titles at that price but continuing the analogy to the music industry I could find a copy of Mariah Carey's "Glitter" much cheaper than $18. I just wouldn't really want to

Dave: Thanks for the comments. I just checked over at Amazon. On the very first page they are selling a Blu-ray disk of "2001: A Space Odyssey" for $9.99. I believe that it was an expensive productive for its time, 1968, costing $10.5 million at the time.

The real reason healthcare is expensive is due to the AMA licensing cartel. This restricts the supply of doctors and drives up the price of health insurance.

All you need is a computer and a compiler to write software. So, the supply of software engineers is determined by the free market.

You need a license from the government to work as a doctor. The supply of licenses is not set by the free market, but by Congress. The supply of doctors is restricted, driving up prices.

If I thought "Doctors are overpaid! I'll go work as a doctor!", I have to go to a State-licensed medical school, pay a couple hundred thousand dollars, and take 10+ years. If I get a license, that's just taking one away from someone else.

It's silly to say "The USA free market health care system failed." The USA does not have a free market health care system, due to the AMA licensing cartel.

I'm highly skeptical of market solutions to health care, because efficient markets require the participation of well informed rational agents. Beyond basic recommendations (break addictions, exercise, maintain a healthy weight), the general public cannot be sufficiently informed to participate well in a health care market. People who are sick or injured (especially the mentally compromised) do not make optimal choices.

As an example: I should get a colonoscopy in the next couple months; I've no idea what the cost/benefit comparison is between traditional and "virtual" (MRI) colonoscopies, so I'm going to do what my doctor tells me to. Individuals don't have the knowledge or means to appropriately reward or penalize doctors. The incentives for insurance companies are perverse - the faster a sick customer gets dropped or dies, the better for the company. Information about the performance of insurance companies is difficult or impossible to obtain, and they often hold an effective monopoly. At the very least, government needs to be heavily involved as a regulator.

There's an interesting article on an alternative payment model in this month's New England Journal of Medicine entitled "Building a Bridge from Fragmentation to Accountability ó The Prometheus Payment Model".

As described by the authors "The model encourages two behaviors that fee for service discourages: collaboration of physicians, hospitals, and other providers involved in a patientís care; and active efforts to reduce avoidable complications of care (and the costs associated with them). It accomplishes these goals by paying for all the care a patient needs over the course of a defined clinical episode or a set period of management of a chronic condition, rather than paying for discrete visits, discharges, or procedures."

Having dealt with the health care system with serious illnesses in myself and both my aging parents I believe that you are underestimating the difficulty of evaluating quality of care.

It is true, as you state, that the incentives currently are skewed in favor of high tech procedures and expensive medications, but once you remove these incentives, you are still left with the problem of defining and delivering quality care.

Most serious medical problems have a technical dimension, a psychological dimension, and a cultural dimension and its difficult to evaluate care on all these levels.

As I think you are very smart, I would like to know your thoughts on how to enhance and maintain high quality medical care.

Brian: "Standard of care" is not "quality of care". The standard of care says whether or not a patient who complains of mild and occasional headaches gets an MRI. Quality of care is something that patients would determine for themselves in a competitive market, perhaps with the assistance of neighbors, magazines, and online communities. Remember that long before insurance companies or Big Government there were some doctors who had good reputations and were sought-after.

The government can help make the market more efficient by collecting and publishing data from all of the clinics/HMOs, but the primary quality control mechanism in my proposal is the market. If people aren't happy with a provider, they will switch for the next year. If a provider kills all of its patients, they won't get their voucher checks for the next year.

Our healthcare costs are inflated because we have a fourth party payer system. Price signals do not reach the decision makers.

That is, patients and doctors decide on care, with minimal regard to cost but with careful attention to paperwork. The health "insurance" companies have little real incentive to control costs because they pass costs on to their customer, the employer. The employer may switch to another insurance company next year, but some other employer will switch back.

This started with the wage and salary controls set up in WWII. Employers competed with benefits instead of paychecks. Health care is the last vestige of that.

The only way to control costs is for those who pay the bills to make the decisions. There are two ways to do that.

One way is for the government to decide care and pay the bills. That will be like the HMOs of the '80s, only there will be no escape. There will be a tendency to increase the administrative budget while cutting the service budget. Quality of care may well depend upon how well connected you are. The rich will get their care outside the system, as always.

The other way is for patients to pay their own bills.

I suggest healthcare spending accounts tied to banks, not employers. The balance rolls over every year. The debit card won't work at the grocery store or the Las Vegas strip. People spend the money on maintenance plus catastrophic and long term care insurance. Poor people could be subsidised based on their income tax returns *when care is delivered.*

People will make mistakes, and may get inferior care, but at least they will be their own mistakes.

I read this article a few months ago and read it again today as health care reform nears passage. I thought it was brilliant then and still think so. Rather than ask about some minor details, my question to Phil is why don't you run for Congress? I'm quite serious. You have money from your own hard work, intelligence, and the ability to communicate your ideas well. You live in the Northeast, I think, and I believe you would be an ideal candidate from that region.

I would have to confess that you lost me when you said, as your first step, "We need to have government take over health care completely." My eyes glazed over, and I didn't read anything else.

As you stated, government already pays for half of our current system. My is the "solution" is to finish the Government take-over, when it's likely that the take-over is a big portion of what's causing so many problems right now? Why not try reversing course, and having government spend less rather than more?

That, and we need to be free to choose our own health insurance. Senior Citizens, in particular, are practically forced onto Medicare, by requiring doctors to either only treat senior citizens on Medicare, or to treat no Medicare patients at all. This removes incentives for Senior Citizens to search out alternative health plans.

Similarly, by putting tax incentives in place to have employers provide insurance, rather than to have individuals pay for it themselves, this takes out yet another step where individuals could look to for cutting costs.

We need a free market. Over the past decades, however, we have done a lot to undermine that free market. Why would having government take over everything fix things?

Todd: Thanks for the vote of confidence. Why wouldn't I run for Congress? The most important skill for a politician is being able to get votes, which is typically done by promising to spend tax dollars on behalf of an interest group, e.g., public employees. Having a good idea for making the country a better place is not very helpful in getting elected. The successful politicians seem to outsource the generation of ideas when necessary for rare occasions such as debates. I'm not sure that politicians even pretend that the ideas they espouse during debates are their own. They might credit "my team of economic advisors", for example, when talking about what they would do regarding restrictions on imports.

Government is now so vast and powerful, spending nearly half of all dollars earned by Americans, that the most sensible course of action is to vote for the politician who promises to spend money on stuff that will benefit the particular voter. For example, if you can't afford health insurance (partly because the government has taxed away nearly half of your income via sales tax, payroll tax, property tax, excise tax, and income tax), vote for a politician who promises to buy you health insurance. It was your money to begin with.

It has become kind of like choosing a spouse. You're going to marry someone who is going to spend roughly half of your income. Do you want to marry a person who is going to spend it on things that have no value to you?

[Yes, I know that in theory there are politicians who promise to cut the percentage that government confiscates from citizens, but in practice none have succeeded in shrinking government (even if some have succeeded in implementing temporary tax cuts).]

No, you should have a government run healthcare system like we have in Britain. It's much better. It works here. I really don't see why it shouldn't work in America. A Private companies, people tend to cut corners. They're not trying to provide a public service, they're trying to make money. Cost doesn't really matter, (since this is to do with someone's life/death or at least quality of life) but it'll be cheaper if there is a system where there is more focus on prevention, and people don't have to pay every time they see a doctor, meaning that they will be able to go even when it hasn't got to serious. like... going to a doctor when you find a lump somewhere, rather than when- if it is cancer- it starts seriously affecting you (preventative care is cheaper). Anyway, if people lived more healthily, it would be less expensive. Maybe that should be encouraged more.

I generally agree with your points. However, your comment with regard to working hours does not in-fact hold up to scrutiny. The number of hours someone works a week is, on a national level, not the deciding factor of health. Over work, lack of sleep, stress and so forth all contribute to ill-health, but if you actually perform some statistics(which I have - feel free to do the same!), you'll find that there is very little relationship between the number of hours people in a nation work, and their health. The effect is completely swamped by other things, like local violence, and quality of health care(which tend to go with high work loads, but among comparable countries there is no effect). Otherwise a nice article, but the first 4 paragraphs are simply not very true(on average). There are lots of other societal problems which account for this.
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